Hoteliers and hosts are always on the lookout for new ways to maximize revenue, but achieving peak earnings requires implementing the right hotel pricing strategy at the right time. In fact, the key to an effective hotel revenue strategy could be making room rate adjustments based on demand and market segments in conjunction with other strategic changes.
If you’d like to learn the basics of developing strategic rate plans and pricing, download a copy of our extensive guide: The Secret Strategies to Rate Plans and Hotel Pricing.
Let’s dive into other key factors that will help you take the guesswork out of your hotel room pricing strategy.
What to consider when developing your hotel’s pricing strategy
- Property Location
- Target Market
- Level of competition
- Property Size
- Services offered
- Upsell opportunities
The first step to creating successful pricing strategies in the hotel industry is to understand the market and meet its demands. You also need to be aware of your guests’ demographics and their needs and expectations.
When it comes to your guest demographic, it’s imperative that you have a clear understanding of where your demand comes from and the specific factors that play a role in the seasonal demand of your hotel. For example, do you notice that you get more business travelers demanding single rooms during the winter months and families requesting suites in the summer? You can refer to your PMS or OTA reports to give you a clearer view of your customer demographics data. Another tactic is to use Google Analytics or other BI tools to track business and segments coming to your property.
Beyond understanding your own market, you need to observe the competition. Your competitors should be a part of what drives your hotel pricing strategy and decision-making on competitive parity pricing, discounts, and advertising. You can start by analyzing your top competitors, and researching everything from their location, amenities, cancellation policy, and price points. Make sure to shop their different rates in different seasons to see what offers/promotions they’re running and when they increase or drop their rates.
Always know your competition and their room rates. An increase in their prices could mean that you need to adjust your rates accordingly. Also, keep an eye out for an increase in demand and a lack of inventory in competitor properties as this could indicate an opportunity for you to adjust your pricing as well. For deeper insight into your market, competition, and your property’s performance (including segmentation of your business) – use you can use hotel pricing software.
Hotel pricing types
There is no one-fits-all hotel revenue management strategy that will work for every property. Instead, it’s recommended that you utilize a combination of different strategies depending on your market’s trends, yield goals, historical data, and targeted demographic. Here are some hotel pricing strategy examples you might want to try out at your property.
1. Open Pricing
Open Pricing is an ideal option for hotels operating independently. Essentially, Open Pricing involves setting rates for distribution channels, room types, and dates that are independent of each other. This luxury of choice allows hotels to forecast more accurately.
2. Value-Added Pricing
With this pricing strategy, you can set a higher rate than your competitor’s pricing because you’ll be offering additional services in the basic package (ie. organic soaps/shampoos, or other package inclusions). The extra perks can be services or items.
3. Discount Pricing
This approach is used to boost occupancy during slow seasons by dropping base rates. Although you will be dropping your base rates for the lean season, hotel revenue can be made up through other items and services at the property.
4. Price Per Segment Pricing
This strategy involves offering the same product at different prices depending on the different types of customers. With this pricing, your rates can be lower if the guest commits to either booking a certain number of rooms or a specific length of stay.
5. Length of Stay Pricing
This strategy consists of adjusting your pricing based on the length of the stay. You can implement a rule where guests who stay a minimum number of days will receive a discount. A promotion like this helps you build occupancy on slow nights and increase your occupancy during periods with low demand.
6. Positional Pricing
This is a strategy where your price is based on your brand’s strength, position in the market, and reputation. Positional Pricing makes it highly important to assess and choose your brand’s market position wisely.
7. Dynamic Pricing
A dynamic pricing strategy will rely on market demand and supply to set the price and it’s usually used to charge a higher price as demand increases. In general terms, a hotel room rate is increased when demand exceeds supply to capitalize on ADR and lowered when demand is weak to increase occupancy.
8. Penetration Pricing
One of the hotel industry pricing strategies used during the initial offering period. These initial lower prices allow you to penetrate the market and attract customers away from your competitors.
What are Rate Plans and why do hotels use them?
Jeremee Peters, Cloudbeds Connectivity Manager, explains how hotel rate plans work, their attributes, and how they help properties generate more bookings.
Hotel pricing best practices
After you’ve determined your pricing strategy or combination of strategies for low and peak season, it is important to continuously monitor market demands and your competitors pricing to remain one step ahead. Here are 5 best practices to create healthy profit margins and continued revenue growth.
1. Maximize midweek bookings
An often-overlooked pricing strategy at hotels is to increase midweek bookings. There are many ways to do this, however, it’s not as simple as just offering a lower rate. While this may attract more business, it won’t be good for the long-term health of your business.
Look to add value for your clients. Create packages and use clever distribution techniques. Here are some ideas for where to start:
- Create an email marketing plan utilizing previous guest data in an effort to attract repeat guests
- Take advantage of reservations made Friday through Sunday and offer an extended stay of one or two nights at a lower room rate
- Develop relationships and collaborate with other local businesses to offer special promotions and giveaways for a midweek stay
- Offer special packages and discounts to midweek guests on both OTAs and your own website
- Capitalize on local midweek events by promoting your hotel as the best place to stay. You can even create a social media post using the event’s hashtag to get more visibility
For example, the hotels in the Temecula Wineries destination collectively participate in midweek and weekday hotel deals as an incentive to attract more guests to the area. Each hotel is then responsible for creating its own special offer.
2. Run effective promotions
One way to get ahead of your competition when demand is low is by using promotions, discounts, and special deals. When demand is slowing down, these deals can be used to attract more bookings.
By offering things like spa or restaurant incentives, hotel room discounts, multiple-night discounts, free nights, etc. you can start to get ahead of the game. By adding these short promotional bursts into your hotel pricing strategy, you’ll gain some traction in bookings and avoid your hotel being perceived as low-quality or constantly discounting.
As an example, hotel FieldHouse Jones even offers discounts and evening events at its onsite cafe, restaurant, and slot car racing space. This way, they are not only dependent on guests for an inflow of hotel revenue, but they also bring in added profits from the local community. This tactic also has the added benefit of providing guests with the feeling of an authentic travel experience since they get to intermix with the local community; it’s a win-win for everyone.
3. Sell last-minute inventory effectively
Hotel industry statistics of 2020 and 2021 show a significant increase in last-minute reservations with very short booking windows (i.e. the time between when a booking is placed and the check-in). A great deal of these is made on mobile devices which means there’s a huge opportunity for more direct bookings for those hotels that have a mobile-friendly booking engine.
The best way to sell off these last-minute rooms is through a pooled inventory system via a channel manager. This creates a seamless two-way connection to your hotel’s various booking sites, like Booking.com, Expedia, or Airbnb, and ensures that the constant flow of information is reliable and up to date.
Additionally, by monitoring your competitor’s rates in real-time, you will be able to make informed hotel pricing decisions to ensure those final rooms are sold without compromise.
4. Use data-based forecasting
In the fast-paced hotel business, having real-time data can mean the difference between getting ahead of your competition or being left in the dust. Without a PMS system that provides reliable, real-time data on your guests and business, you won’t be able to track the information that’s crucial to building a successful hotel pricing strategy. Having the most up-to-date data at your fingertips allows you to assess the level of live demand in the market so that you can react faster and more accurately.
5. Use revenue management technology
The hospitality industry is no stranger to innovation in revenue management technology, with solutions ranging from high-specialized tools for revenue managers to easy-to-use platforms for the needs of a smaller property. Cloudbeds can help you create the right pricing strategies with our Pricing Intelligence Engine (PIE).
PIE is an easy-to-use tool that streamlines complicated hotel pricing decisions using real-time market data. With competitive intelligence and an all-in-one dashboard, PIE can help you make the right pricing choices.